Governance and Success in U.S. Equity Crowdfunding

Abstract

We propose three governance mechanisms pertinent to equity crowdfunding and campaign success through mitigating pronounced information asymmetries and agency problems. First, unlike IPOs for which the effect of Delaware incorporation has declined or disappeared over time, we propose Delaware incorporation matters a great deal for success in the new setting of equity crowdfunding. Second, we propose that security design is a critical tool for equity crowdfunding success and even more important than the limited 2-year financial statement disclosure. Third, we propose that platforms as intermediaries between entrepreneurs and investors play an important role in mitigating and sometimes exacerbating information asymmetries and agency problems. The population of equity crowdfunding campaigns from market inception in May 2016 to Q2, 2021 in the United States provides strong support for these propositions.

Challenges for corporate governance at the national and firm levels

“…Crowdfunding has grown rapidly in recent years, from $23 million in 2016 to $244 million in 2020 in the United States 2 and from £272 million in 2016 to £549 million in 2020 in the United Kingdom 3 . (Cumming et al, 2021). The rise in crowdfunding research matches the growing importance of the asset class for the industry and reflects a growing academic interest in the role of alternative finance in corporate governance.…”

“…Venture capital, private equity, and hedge fund investors are typically viewed as performing more intensive screening and monitoring roles, as well as adding value to their investees. Equity and debt crowdfunding investors likewise play unique governance roles depending on the design of the platform and the structure of the investment contracts offered to the crowd (Cumming & Johan, 2019; Cumming, Johan, & Reardon, 2021). Crowdfunding has grown rapidly in recent years, from $23 million in 2016 to $244 million in 2020 in the United States 2 and from £272 million in 2016 to £549 million in 2020 in the United Kingdom 3 .…”

Private or Public Equity? The Evolving Entrepreneurial Finance Landscape

“…These new organizations and platforms-alongside the regulatory changes that have facilitated them, discussed above-have contributed to a marked increase in the number of fundraising options available to early-stage startups since 2002 (Table 1, rows 15-18). In particular, after a delayed start relative to much of Europe and Australia likely due to the lack of a regulatory framework prior to Reg CF, equity crowdfunding may be finally taking off in the U.S., with an aggregate $244 million raised in 2020 (Cumming et al 2021). That said, the jury is still out on the real effects and staying power of some of these innovations.…”

Intentions to Adopt Contactless Travel in the Post-Pandemic Era: Adapting to a New Normal

“…Despite the evident traction gained by contactless solutions, a substantial gap persists in our understanding of the intricate challenges and opportunities associated with their implementation [6]. The research is based on a framework that extends the theory of planned behaviour to the current landscape of contactless travel initiatives.…”